Hello,
I’m about to incorporate a new Delaware C Corp for a SaaS product, and was hoping to get some advice on stock assignment and 83b election. I have a cofounder and we’re doing a 55/45 split to start with, which will obviously get diluted as we get investors and more team members.
My questions are:
- Do we need to assign stocks to the cofounders immediately after incorporation? Or can we wait for 2-3 months till we get some customers and perhaps investors?
- If we should do the stock assignment right away, then should we divide the entire 20 millions stocks or do it partially and reserve the rest for investors?
- If we get investors, then there will likely be a vesting schedule that we will have to follow - can we do the stock assignment and 83b election then?
- Without doing the stock assignment, is it okay to accept payments into the company bank account?
Thanks in advance for the help!
Re # 2. Is the 20M your total authorized share count? Having shares available to issue vs those that are outstanding makes a difference.
Or do you have 20M shares o/s? If o/s, assign per your ownership %, and then effect pro-rata transfers when you get investors.
20M is going to be the total number of authorized stocks after the company has been incorporated - nothing has been assigned yet.
So if we assign to ourselves after incorporation, perhaps that would not require 83b election?
Then in the future, we get investors and issue fresh stock, vesting schedules will kick in - is that when we should file for 83b election?
Probably best to authorize more shares when you’re ready to issue to advisors or take on money.
Investors will want preferred stock rather than the founder’s common and, more importantly, investors can’t take advantage of QSBS when receiving their shares from the founder instead of the company.
Most C corps start by establishing director(s) who must then unanimously approve (usually by unanimous written consent) an organizational consent to appoint officers, establish officer authority (such as control of the bank account), approve the issuance of stock, and more.
83(b) elections must be filed within 30 days of issuance or you’ll recognize income upon vesting.
Should we establish a vesting schedule even if there are no investors in the picture at the moment?
55/45 split
Any reason why you two don’t have the same equity ?
Inequalities in equity can go a long way, it’s commonly knowledge that unequal equities among founders can create resentment as time goes on and involvement changes.
Unequal equities are usually decided before getting serious when commitment is scarce, at that point sometimes the most active one can get more equity in the first 3-6 months.
However companies can take 4-5 years to takeoff, working you ass of for years and years can and will likely change the power structure among the founders. Unequal equity will then demotivate key founders as they’d feel robbed.
“It’s not really my project, I just need to get this done and after this one I’ll make my own company” is the root of all problems
Equal equities even if not ideal doesn’t create the same amount of resentement. For just 10% difference between you two, I’d suggest to avoid planting that seed for problems.
Ok, will think about your suggestions on the equity split.
Any thoughts on the core questions I asked in the thread?
- Assign all stocks to all founders at creation, this is a no brainer. All companies have owners.
- You can have a contract for future changes or vested stocks to allow changes even with a potentially unfriendly founder in the future
- You’ll emits new stocks when you have investors, that’s how dilution works, you don’t sell your current shares. The money goes to the company, not your pocket like when selling shares.
- I’m not in the US can’t help you with that
- The company can accept paiments from the incorporation
Question 1 and 4, indicate that you might need to really ask for help of an accountant or CPA.
- Assign all stocks to all founders at creation, this is a no brainer. All companies have owners.